Characteristics of Scaled up Outsourcing

The term outsourcing is so wide that, used without any further specification, would cover so different services that only few of them would have something in common but the obvious fact of having to be delivered from outside the organization. Therefore, before dealing with more exciting aspects, let’s take a break to better understand what we refer to when talking about “scaled up outsourcing”.

By scaled up outsourcing we mean a high complexity outsourcing impacting both, the client renting the services and the provider delivering them. That complexity is determined by three factors of difficulty taking place simultaneously:

• The first complexity factor is fully quantitative and relates to a high volume of transactions (size and complexity are definitively connected). As consequence, some of the most typical functions carried out by companies (IT, accounting, HR, logistics) are excluded from scale when only limited transactions are involved (third bureaus, curriers and similar providers are normally taking these volumes over). Also the pure professional services (lawyers, medicals, engineers) are kept out from this scale as the complexity they are bringing, even though high, is not transactional based.

• The second complexity factor, quantitative and qualitative at the same time, relates to a minimum threshold of people being required to run operations (managing people is one of most complex streams). However, that threshold is not fixed and evolves inversely to the difficulty of the process itself. For instance, a team of 20 or 25 people could be enough to grant scale to a complex operation (like a portfolio funds administration of a major bank) whilst a one easy to perform (like a highly commodity call center) could require even some hundreds to reach similar scale. As a result, those highly transactional processes that are massively supported by technology, but only requiring few people to operate, are also out from scaled up outsourcing (invoice printing, document digitalization, systems monitoring).

• The third complexity factor is qualitative and relates to the need of having available a knowledge that goes well beyond the service committed to externalize. That is extremely important because the scaled up outsourcing requires correctly understanding, interpreting and resolving the integration requirements coming from other areas of the company. And, the other way around, to clearly explain their own integration needs to those other areas and then to double-check and validate proposed solutions in order to ensure the continuity of operations. Nowadays, most of areas are requiring being strongly integrated, but some representative examples could be a logistic operation serving a production line, an accounts receivable supporting a billing process, or a selling process requiring strong customer operation support.

To better illustrate the different complexities provided by each factor, non-compliant examples that, consequently, were automatically excluded from scaled up outsourcing were mentioned above. Compliant examples resulting from suitable combinations of those three factors of complexity would be easier to find in areas such information technology, finance and accounting, human resources, sourcing and procurement, logistic, post-sales, customer care, risk prevention, etc. Some others more industry specific oriented are: mortgages, loans approval or fund administration in the banking industry; contracting, provision or network management on the utility or communication industries; clinic data management, pharmacovigilance or regulatory in the health industry; digital archiving or rights management in the media; fines management or capital projects in the public sector.

It shouldn’t be a surprise the wide range of areas that can be considered within the scaled up outsourcing because, as noted, complexity is what drives, not scope itself. By the way, that complexity can grow up almost without any limit (providing even further scale) as other complex factors are also included, like new countries, additional businesses, process transformation, people transfers, objective based billing, etc.

Just in the opposite side to the scaled up outsourcing, a much more basic outsourcing is located. It is quite commodity and very much output driven, so easy to validate. As consequence, just an active participation and common sense should be enough to manage this category. Between the basic and the scaled up outsourcing, there is a third category, the intermediate outsourcing, to which many of the scaled up outsourcing principles can be applied. It is remarkable the difficulty this intermediate outsourcing category can reach in real life. Some times it is due to the lack of tools and specialized resources to help properly managing the service (unforgivable fact when it is consequence of a more or less consent agreement between parties in order to reduce prices through lowering costs).

Summarizing, in following chapters the high complexity outsourcing will be treated in detail. Most representative cases will be within the scale up outsourcing, but content will be also applicable to many other types of outsourcing included in the intermediate outsourcing category.

First contact with Scaled up Outsourcing

Simplifying a process that should not be critical, that make us consume more time than was initially thought and that, quite sure, should be delivered at a lower cost, is the first step to think about outsourcing. However, when the process has certain scale, the background becomes complex and the available information insufficient, making the risk of taking the wrong decision difficult to quantify.

Particularly remarkable is the relative lack of training programs and technical publications around outsourcing. It may be due to the still existing immaturity of many methodologies or, at least, to the huge dispersion when trying tom put them in practice in the real world. Whatever it would be, it seems clear that getting in advance the required preparation is a real challenge.

That, as in other occasions, places us in hands of third party companies, consulting firms among others. Of course they are willing to sell, so fully aligned with outsourcing. But, on top of it, we have to recognize that their arguments look accurate, are well structured and sound quite compelling. They are also well supported by first class clients credentials. With so much in favor, we start wondering whether our concern would not be the result of our own lack of awareness and whether we should be more confidence on experts’ advises.

But arguments against coming from really convinced detractors sound perfectly reasonable as well. And there are always quite a few folks available, heavily awarded in dozens of battles, ready to share wide span of tough experiences about outsourcing.

If both ends are difficult to reconcile, the middle range paradoxically does not seem to exist. Even market analysts themselves confess great difficulty when standardizing responses from C-level contributors before making data, trends or final reports public.

Not easy leaving the loop before we start realizing that this outsourcing, the one including larger scale, the most complex, is not to be bought, but to be built. Then, a new dimension comes in and different opinions (and emotions) difficult to harmonize so far, start fitting together like pieces in a puzzle.

With this new mindset, the focus changes. It is not anymore about the unidirectional "what is your offer”, but about the bidirectional "how do you complement me. This change is now requiring more interactive participation and team building from both sides. The downside is that it is usually going to take an extra effort to the client (still with limited capabilities, but now better oriented on targets) and extra commitment to the supplier, fully confident on its “by default” solutions up to this point but now requiring further restructuring to demonstrate flexibility.

It is not the time now to provide further insight on this matter. However, it is not difficult to note that the final commitment should include the right balance between the industrialization the supplier provides and the adequate level of customization that client requires. Achieving the right balance is really important because it will be the base for a  strong relationship in following years, bringing further confidence, to one side, and probably new business opportunities, to the other, along time.

Finally, and despite the additional effort being required, it can be predicted that many companies will have no choice but to go necessarily into outsourcing in a relative near future. It won’t be just because the “further flexibility at lower costs” repeatedly benefit being always sold, but to get access to some of the very relevant competitive advantages these companies will increasingly bring through own innovation.

Innovation itself should be subject of specific interest for the industry as well. That is because, whilst many players are still pursuing competitive growth by stressing their existing solutions at, each time, lower prices, their room to innovate collapses. As a result, their existing solutions lose differentiation in favor of those other players that, even though playing similar strategy, had easier access to funding and, as consequence, to more scalable technologies, leaving them in an enviable position to easily absorb existing contracts and new coming in volumes at those lower prices.

We all know that innovation is the only way to long-term differentiation, and price of services the ultimate way to get it funded.

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New entries to come (random order):

•   Tactic Outsourcing Vs strategic outsourcing.

•   Transformation and outsourcing: taking advantage of the big change.

•   Outsourcing is to sell, not to defend.

•   Industrialized outsourcing Vs Customized outsourcing.

•   People transfer: myths, legends y common sense.

•   Outsourcing companies from inside: secrets that matter.

•   Privatization Vs externalization in the public sector.

•   Outsourcing & geo location: Once upon a time an English, a Chinese and  a Spanish man… better if a joke!

•   Retained Vs outsourced: "it loves me, it loves me not".

•   Communication strategy or “why dwarfs start growing just after a circus is set up.

•   The business case: performers and believers.
•   Service level agreements: "fair metric, fair balance".

•   The contract: when ultimate interests are always shown.

•   The rever... what?; the reversion.

•   Change requests: or the never-ending contract.

•   Fine but, if I'm not big, who wants me?

•   Outsourcing ethic: "Spanish dólares or Spanish dolores".

•   Outsourcing is coming: directors and employees, what now?

•   Outsourcing evolution… Yes, history can already be made.

And some few more.